Albert Ratner sues to delay vote on Forest City sale

Forest City HQ Vocon 2018

Employees walk through the lobby of Forest City Realty Trust, Inc.'s new headquarters at Key Tower in downtown Cleveland. Shareholders are scheduled to vote Thursday on selling the company to Brookfield Asset Management, in a deal that followed almost a year of discussions and left the board of directors deeply divided.
(Vocon)

Albert Ratner, a former chief executive officer and member of the Cleveland-based company's founding family, filed a lawsuit late Monday seeking to delay the vote on grounds that shareholders haven't received complete, accurate information. The suit, filed in federal court, is an escalation of Ratner's recent campaign against a transaction he describes as under-priced and unjust.

"This is my life," Ratner, who is 90, said of the company during an interview late last week. "While we haven't always been successful, the one thing we've always tried to do is we've tried to be fair to people. And this is just plain unfair."

In his lawsuit, Ratner asks the court to temporarily block shareholders from voting on the proposed sale of Forest City, a publicly traded real estate investment trust, to an affiliate of Toronto-based Brookfield Asset Management for $25.35 per share. He argues that the proxy statement, a regulatory filing meant to inform and guide shareholders, omitted key facts and included erroneous information.

Ratner and his wife own just under 1 percent of the company's shares. Members of the Ratner, Miller and Shafran families, who controlled the nearly century-old real estate business for most of its history, collectively own roughly 10 percent of the stock. The only other family member to publicly take a position on the sale is James Ratner, a company director whose opposition was noted in the proxy filing.

"I'm not speaking for the rest of the family, other than to say we are a closely-knit family," Albert Ratner said.

Forest City has declined to comment publicly on Ratner's pushback.

The company announced the Brookfield deal in late July, after an unusual, divided vote by its recently reconfigured board. Directors had been evenly split, six to six, but ultimately voted seven to five to forge ahead with the deal.

CEO David LaRue, a longtime Forest City employee, was the swing vote. The other proponents were newcomers to the board, some of them seated only two months beforehand at the behest of two hedge funds who had bought up company stock.

Ratner, who was chief executive from 1975 to 1995 and a director until 2011, says that shareholders are getting shortchanged. Forest City's real estate - apartments, office buildings, mixed-use projects and other properties in major cities - is worth more than the price that Brookfield is paying, he notes.

And Ratner asserts that shareholders' returns are further depressed by the fact that Forest City isn't paying out dividends for the second half of this year, while the Brookfield transaction is on the table. The sale, if approved, would happen in late 2018.

In recent reports, two shareholder-advisory firms have expressed support - though somewhat tempered - for the deal.

Glass Lewis & Co. noted Ratner's concerns but described Brookfield's offer as a "financially compelling exit point" for shareholders and "a reasonable valuation" of the company relative to its peers. The benefits of selling now outweigh the risks of maintaining Forest City as a standalone business, Glass Lewis said last week.

Institutional Shareholder Services also recommended that shareholders vote in favor of the transaction, though the firm said Ratner "has raised valid concerns with the approval process and transaction terms."

Ultimately, ISS concluded after conversations with company leaders and Ratner, "cautionary support for this proposal is warranted, as it represents an opportunity to crystallize value at a premium in a rising interest rate environment."

Regulatory filings show that Scopia Capital Management LP, a hedge fund that had a hand in structural and governance changes at Forest City in the lead-up to the Brookfield announcement, has been unloading shares. Scopia, which owned more than 8 percent of Forest City's stock around mid-year, has winnowed its stake to 4.7 percent since early November, selling shares for $25.16.

Those sales won't have any impact on Thursday's shareholder vote, though, if the meeting occurs as scheduled. Scopia agreed months ago to support the sale, and the vote is being based on Forest City's shareholder roster as of Oct. 11.

In his lawsuit, Ratner asks the court to prevent Forest City from holding the special shareholder meeting until a month after the company mails out a corrected proxy statement. If the vote happens before the court weighs in, Ratner is seeking to have the results of the shareholder meeting thrown out.

It's unclear whether he'll prevail. In early November, Forest City quickly dispensed with another case, a class-action lawsuit filed in Baltimore against the board of directors. That suit, filed Oct. 30, also alleged that the proxy filing was insufficient and that the sale of the company shouldn't move forward. The parties entered a settlement agreement Nov. 2 and dismissed the litigation.

Forest City added a few short disclosure notes to the proxy document but said, in a regulatory filing, that the complaint was "without merit."